Corporate Law FAQ

Directors must act with care and diligence, in good faith in the best interests of the company, for a proper purpose, avoid conflicts of interest, and not improperly use position or information. These duties exist in both statutory and general law forms.

The business judgment rule is a statutory defence to the duty of care and diligence. It protects directors who make a business judgment in good faith, without material personal interest, with reasonable information, and who rationally believe the decision is in the best interests of the company.

A proprietary (Pty Ltd) company has no more than 50 non-employee shareholders, cannot raise funds from the public, and has lighter reporting obligations. Public companies can raise from the public, can list on ASX, and face stricter governance and disclosure rules.

Shareholders have statutory rights to vote at general meetings, receive dividends if declared, receive financial reports, inspect the register, and participate in a winding up. They also have statutory remedies for oppression and derivative actions.

Section 232 allows the court to grant a range of remedies (including winding up, share buy-back, or regulation of conduct) where the affairs of a company have been conducted oppressively, unfairly prejudicially, or unfairly discriminatorily against a shareholder.

A public company director can be removed by ordinary resolution at a general meeting with special notice. A proprietary company director can be removed as the constitution provides (usually by ordinary resolution). Court removal is available in specific circumstances.

A related party transaction is the giving of a financial benefit to a related party (director, director's spouse, controlled entity). Public companies must obtain shareholder approval unless the transaction fits an exception such as arm's length or reasonable remuneration.

Continuous disclosure is the ongoing obligation of listed entities to immediately disclose information that a reasonable person would expect to have a material effect on the price or value of the company's securities, subject to carve-outs for confidential information and certain exceptions.

Insider trading is trading in securities (or procuring another to trade) while in possession of information that is not generally available and which, if generally available, a reasonable person would expect to have a material effect on the price. It is a criminal and civil offence.

The main methods are share issues (rights issues, placements, SPPs, IPOs), debt instruments (bonds, notes), and convertible securities. Disclosure document requirements vary — offers generally need a prospectus unless an exception such as section 708 applies.

Legally there is no formal merger process in Australia. "Mergers" are structured as acquisitions via share sale, asset sale, or scheme of arrangement. Takeovers of listed companies are regulated by Chapter 6 and supervised by the Takeovers Panel.

Acquiring relevant interest in 20% or more of a listed or unlisted company with more than 50 members generally requires an exception — the most common being a takeover bid, scheme of arrangement, or shareholder approval under item 7 of section 611.

A scheme of arrangement is a court-approved process for effecting corporate change (typically 100% acquisitions or restructures). It requires shareholder approval by special majorities and court sanction, and binds all shareholders once approved.

A shareholders agreement is a private contract between shareholders (and usually the company) dealing with governance, transfer restrictions, pre-emptive rights, drag-along/tag-along, dispute resolution, and exit. It supplements but does not replace the constitution.

Directors are generally protected by the corporate veil but can be personally liable for insolvent trading, unpaid tax under director penalty notices, breaches of duty, phoenixing, and personal guarantees. Officers can also be liable under the Workplace Health and Safety Act.

ASIC is the Australian Securities and Investments Commission, the corporate, markets, and financial services regulator. Its functions include registration, enforcement of the Corporations Act, surveillance of markets, and licensing of financial service providers.

A prospectus is the standard disclosure document for public offers of securities. It must contain all information investors and their advisers would reasonably require to make an informed assessment of the offer. Exceptions to the requirement include sophisticated investor and small-scale offers.

Section 708 lists exemptions from the disclosure requirements of Chapter 6D. The most common are offers to sophisticated investors (net assets of $2.5 million or gross income of $250,000), professional investors, and small-scale offers (20 investors in 12 months up to $2 million).

Most small proprietary companies do not need to lodge audited financial statements with ASIC, but large proprietary companies do. The thresholds turn on consolidated revenue, assets, and employee numbers as defined in section 45A.

Simple shareholder agreements or company set-ups typically cost $1,500-$5,000. M&A transactions range from $20,000 for small deals to multi-millions for complex cross-border work. Most corporate work is charged on time-cost basis with regular estimates.